A No-Good, Really Bad, Awful Year for This Pharmaceutical Company

With the year quickly coming to an end, it's always a good idea to check in on how some of our most watched stocks are doing. By continually completing our due diligence, we're able to get a sense for where a business is coming from, and where it's going.

Today, we'll be examining K-V Pharmaceutical (NYSE: KV-A  ) , which provides medical solutions, primarily for women.

We'll go over the specifics of the company below, but first, here are the vital statistics:

Stats on K-V

Year-to-Date Stock Return (47.8%)
Market Cap $79 million
1-Year Revenue Growth (82.1%)
1-Year EPS Growth NM
Short Ratio 23.6%
CAPS Rating (out of 5) ***

Source: Yahoo! Finance, Google Finance, fool.com. NM = not meaningful, as the company was not profitable one year ago.

Lack of leadership
The year ended with CEO Greg Divis ranked No. 2 on our Worst CEOs list. How did he get there?

Well, it all started in February, when the company got approval for the use of Makena -- it's new drug developed with Hologic (Nasdaq: HOLX  ) that prevents pre-term births. The possibilities seemed endless for the company, and the stock absolutely took off, gaining over 700% in just over one month!

K-V Pharmaceutical Stock Chart

K-V Pharmaceutical Stock Chart by YCharts

And then, with the good will of the medical and investment community pushing it forward, Divis decided to make one of the worst PR decisions in recent history: pricing Makena at an eye-popping $1,500 dollars per dose, when it was previously compounded by doctors for as little as $15.

Not content to have raised the ire of the public, the company tried to argue that it had exclusive rights to the pre-term birth treatment. The FDA promptly announced that it'd be allowing doctors to use the previous combination of drugs that ran for $15 in order to avoid the heavy costs associated with Makena.

The threat of congressional intervention even surfaced. In May, AVANIR (Nasdaq: AVNR  ) was forced to justify the price of its Neudexta to elected officials. Many thought at the time that Dendreon's (Nasdaq: DNDN  ) Provenge, Bristol-Myers Squibb's (NYSE: BMY  ) Yervoy, and K-V would be the next targets.

Make no mistake, some company is bound to make money off of sick or dying babies, but the 10,000% jack-up in price paints capitalism in just about the worst way possible. That's a stain that'll be tough for K-V to ever remove.

Just look at how the rest of the year has gone since the announcement.

K-V Pharmaceutical Stock Chart

K-V Pharmaceutical Stock Chart by YCharts

Clearly, looking toward 2012, there are better options out there for you than K-V Pharma. I suggest you take a look at our special free report, The Motley Fool's Top Stock for 2012.

Inside, you'll learn about a company that has all the greatness of Costco, but is laying down roots in the fast-growing economies of Central and South America. Get your report today, absolutely free!

Fool contributor Brian Stoffel does not own shares in any of the companies mentioned. You can follow him on Twitter at @TMFStoffel.

The Motley Fool owns shares of Dendreon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 23, 2011, at 2:13 PM, cvoeagle wrote:

    It is amazing that time and again the Fools and so many others miss the most important issue about KV and Makena. I believe if you study the drug, it appears to be "A Life Saving Drug" at the beginning of life, with an efficacy that appears to be amazing in relation to so many other "approved drugs." The FDA themselves stated that it was one of the most impressive studies they have ever seen.

    The cost of raising a healthy child today is immense with the cost of medical, dental and education. The cost of raising an unhealthy child, though we love them is a nightmare for all.

    I would argue that Makena is worth every bit of the original price. Only a Fool would risk a mother and newborn on a non-sterile compounded 17P

  • Report this Comment On December 23, 2011, at 5:40 PM, TMFCheesehead wrote:

    @cvoeagle-

    I hear what you're saying, but where's the end to this slippery slope, then? What if you could take a drug that would guarantee to prolong your life by 20 years but you'd have to pay your life saving?

    It's more of a philosophical question, but at what point is the price paid simply too much?

    Brian Stoffel

  • Report this Comment On December 23, 2011, at 6:18 PM, cvoeagle wrote:

    Brian,

    A valid point that you raise when it comes to a later stage of life drug, such as Provenge at 90,000 per treatment for stage 4 prostate cancer. However we are talking with Makena about a drug at the beginning of life, that may prevent costly medical expenses both early and later in life.

    A study was done about a year ago that put the average value of a productive human life over a lifetime at about 7.5 million. I suppose in this study they include the Bill Gates of the world along with the average human, but an amazing figure when you think about it.

    Health is the most important thing in life. Maybe Education second and look at the cost of a College Education these days. With life expectancies of between 70 and 80 years, this cost at the beginning of life for those at risk seems well worth it.

  • Report this Comment On December 26, 2011, at 5:07 PM, andy2012 wrote:

    You have no clue about what you saying in this article. Find some positive views.

    Who is paying you to write this article?

  • Report this Comment On December 26, 2011, at 9:02 PM, cskr wrote:

    What did KVA, AVNR really invent? Those are already existing compounds.

  • Report this Comment On December 27, 2011, at 10:22 AM, stfuhr wrote:

    Why do you guys have such a h@rd-on for KV. The stock is only $1.30, you should be able to cover your short position by now.

  • Report this Comment On December 27, 2011, at 3:31 PM, cvoeagle wrote:

    The intial compound was developed by Sqibb years ago and tossed aside like many potentially promising compounds are.

    Someone at KV was smart enough to pick up on the potential indication of the now FDA approved formulation of it (Makena.)

    Smart that it didn't cost them initially billions in trials like Dendreon.

    The Government wants drug companies to study existing potentially promising compounds and take them through the FDA process, so much so that a partnering of Government/Private sector I think has been alrready government funded.

    The issue is, that the FDA needs to stick with ownr own rules of exclusivity upon approval or it is not going to be succesful.

    However the FDA, I believe recently stated that they want to shut down unapproved products within one year of an approved product being approved as was the case with Colcrys for gout.

    Once Colcrys was made available to those that need patient assistance, the unapproved product was shut down, just about a year later.

    Hopefully KV can prove the same such access.

  • Report this Comment On December 27, 2011, at 3:53 PM, cvoeagle wrote:

    It seems that more and more the financial press seems to have an agenda when writing many of these articles these days.

    The Fools like to consider themselves "educational." If that is the case than the headlines and articles themselves should be balanced in their approach.

  • Report this Comment On December 27, 2011, at 4:12 PM, TMFCheesehead wrote:

    @cvoeagle-

    The article is intended as a recap for the stock's performance in 2011. As such, I think the link between causation of the stock's price changes and events which caused the changes are pretty spot-on. The drug was approved, the stock shot up. The drug was priced very high, the stock shot down.

    I also think we can all agree that, whether it was fair or not, KV's reputation was stained in the process.

    Brian Stoffel

  • Report this Comment On December 27, 2011, at 6:41 PM, cvoeagle wrote:

    Brian

    Recently, after bashing the pricing of Makena by KV ACOG essentially reversed their earlier statements, the most Important audience of all

    If everyone had listened to the conference call by KV on initial priicing, and more importantly if KV had maybe done a better job in describing initially the effectiveness of their FDA approved verision of the drug I think that we wouldn't have had Th initial outcry.

    It was priced in line with HGSI'S Benlysta, it's a quarter of the price of Dendreon and so on and look what it potentially does and the stage of life it does it in.

    Johnson and Johnson and others have had reputational problems this year but the others are big companies. KV had previous reputational problems but current management seems very smart on their recent executions.

    Yes the press was terrible but unfortunately the press more often than not especially in the financial world gives us headlines without balance these days.

    A few healthy baby deliveries as a result of Makena could turn things around pretty fast for KV and just what price does one put on that?

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